Problem:
Iverson Company is considering the purchase of a new machine. It will cost $270,000, last for 8 years, and have a zero terminal salvage value at the end of that time. If purchased, the machine is expected to increase revenues by $250,000 per year, but additional cash outlays to operate the machine will equal $200,000 per year.
Use straight-line depreciation and ignore income taxes.
Compute:
1. Net present value if the minimum desired rate of return is 10%
2. Payback period
3. Accounting rate of return using initial investment